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Protracted recovery.
In April, the Chilean economy expanded at an annual
rate of 6.4%, according to the Central Bank’s monthly indicator for
economic activity (IMACEC). This
is the same result as in March and somewhat below market expectations,
which hovered around the 7% mark. Additional
indicators reveal that, while the April performance was still positive,
the recovery from last year’s recession so far remains strongly driven
by the external sector and consumption whereas investment is lagging
behind. Data from the Chilean Federation of Industry (Sofofa)
indicate that planned investment projects are still well below the levels
seen in pre-recession years 1997 and 1998.
In May, industrial production increased 11.3% over the same month last
year, significantly up from the 2.9% expansion reported for April.
However, the positive reading is in part due to two extra days
worked compared to last year. Consumer goods recovered strongly (durables: +25.7% following
+20.8% in April; non-durables: +10.7% up from –2.0% in April;
intermediate consumer goods: +11.1% well above April’s +5.9%). However, even though capital goods production remained in
negative territory, the 9.4% contraction compares favourably with the
26.6% slide reported in the previous month.
Despite the rapid expansion of industrial production, the rate of open
unemployment rose to 8.9% in May compared to 8.5% the previous month.
The larger than expected increase is in part due to seasonal
factors but also indicates that the business community has not yet gained
the necessary confidence to go on a hiring spree.
The stubbornly high unemployment has also affected consumer
confidence. Retail sales
increased just 2.8% in May despite a very weak comparison base year in
1999. The more contained
recovery from last year’s recession to full potential growth has brought
the trend of increasingly optimistic forecasts for this year's economic
expansion to a halt with panellists maintaining their expectations.
Inflation rising further.
The annual inflation rate inched up a notch to 3.7% as
consumer prices increased 0.2% in June.
Housing (+0.7%) and transportation (+0.4%) price increases drove
the June price spike whereas clothing prices dropped 0.5%.
The underlying inflation rate (the lead indicator watched by the
monetary authorities, which excludes the volatile categories of fresh
fruits, vegetables and fuels) remained stable at 2.7%.
Consensus Forecast
panellists continue to adapt their projections for year-end
inflation to what appears to be a more accommodating monetary policy from
the Central Bank and an expected recovery in consumer demand towards the
end of the year.
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